Michigan’s stumbling middle class

James Jacobs hands a guest to his Macomb Community College office his latest economic forecast, a puzzling six-page mix of good news and bad news.

The number of jobs in Macomb, the state’s third-most populous county, are increasing. New home construction is rising, as is industrial expansion. But more residents are also going to food pantries and receiving federal Supplemental Security Income (SSI). Median household income has fallen sharply.

Jacobs, a well-known economist in addition to being a community college president, doesn’t need bar charts and spreadsheets to know that something has happened to Michigan’s middle class. There are now two food banks on campus. The parking lots aren’t as full as they used to be because thousands of students, most with families and full-time jobs, arrive by bus because fewer now own cars.

This suburban campus and the sprawling county it serves are ground zero for Michigan’s middle-class malaise. The stock market is up. Unemployment is down. Gov. Rick Snyder lauds the “Michigan Comeback.” Yet today’s workers are part of the first generation in Michigan history who, taken as a whole, are not better off than their parents.

When adjusted for inflation, Michigan’s median household income is lower today than in 1969, when Neil Armstrong stepped on the moon and Richard Nixon was sworn in as president.

The decline is staggering: the median Michigan household makes do with the equivalent of $15,000 a year less than the median household in 1969, according to a Bridge analysis of U.S. Census data. That’s an annual loss in buying power in one generation greater than the cost of tuition at Michigan State University or a new bass boat.

“The fact that there is a loss by any measure, over such a long period, is unprecedented in our history,” said MSU economist Charles Ballard.

This seismic shift in fortune has far-reaching impact for the state and its residents, from the age of cars and the size of homes Michigan families can afford, to the state’s ability to pay for smooth roads and support top-flight public universities.

Who took our middle class?

When adjusted for 2015 dollars, the median Michigan household in 1969 earned the equivalent of $64,778. Household income fluctuated a lot over four decades, but never reached 1969’s level. In 2013, the most recent year available, the median household income was $49,418.

The median family is making do with the equivalent of $1,280 less income per month. Here’s one way to picture that difference: If today’s median income family had the buying power of their parents, they’d could lead the same lifestyle they lead today and have enough left over to make monthly mortgage payments on a $250,000 cottage Up North.

“There are a lot of people being paid a hell of a lot less money than they (would have) a generation ago,” said Larry Good, co-founder and chairperson of the Ann Arbor-based Corporation for a Skilled Workforce. For some, the change was abrupt and traceable to a single event, such as a layoff from a high-paying auto job. But for most, the change is less noticeable because it occurred over decades.

“I don’t think there’s an understanding of what has happened,” Good said. “It’s happened in a thousand cuts over a generation. People don’t notice because, unless you were laid off from an auto factory, it’s happened one increment at a time. You don’t add it up. It could be your paycheck staying the same and expenses going up. It could be your spouse going to work to pay for college tuition.”

The changes add up, Good said. “How often do you go out to dinner? Do you have an Up North cottage? How old is your car? Short-term necessity trumps long-term planning more and more often.”

In giant swaths of Michigan, household income is lower today than in 46 years ago (only 15 of the state’s 83 counties have median household incomes higher today than 1969, when adjusted for inflation).

In 17 counties, 1969 was the peak year for median household income. They include many of the state’s most populous, including Wayne, Macomb, Ingham, Saginaw and Kalamazoo.

In most other Michigan counties, median household income peaked in 1999, but has since fallen below that of 1969.

Historic income gap

Not everyone has suffered. While the state’s low- and middle-income families have been mired in economic quicksand, Michigan’s top 10 percent of earners have seen their buying power, when adjusted for inflation, rise 37 percent since 1978, according to an upcoming Michigan State University study.

The MSU study uses a different formula than Bridge’s analysis to determine income inflation, but the trends are generally the same.

In 1976, the top 10 percent of households in median income made $105,000 or more in current dollars, when adjusted for inflation. Today those families earn $144,000 or more – a 37-percent increase in buying power.

Over this same period, the income of the median Michigan family has remained flat.

“We’ve returned to the level of inequality that we had 100 years ago,” said MSU’s Ballard, co-author of the report.

That gap is growing in Jacobs’s backyard as well.

“There’s a huge gap growing between the wage rates of certain kinds of individuals,” he said. “If you’re in Macomb County and you’re working in a union plant and you’re a skilled tradesperson, and your wife is a registered nurse, the combined incomes of those people are considerably higher than somebody working on Groesbeck Highway making $11 an hour, and whose wife works part-time at Walmart.”

Falling off a financial cliff

One of the first articles Jacobs recalls writing for a newspaper was in 1970, when Census figures revealed that Macomb County was 17th in the nation in median household income, among more than 3,000 counties. Michigan is sixth among the states.

By 2013, Macomb median income had dropped to 484th in the nation, while Michigan as a whole plummeted from sixth to 30th.

The county’s median household income has been in freefall, dropping $26,880 since 1969. That’s a decline in buying power of $2,240 per month in a generation.

Jacobs can see the impact from his office window at Macomb Community College, where the number of students receiving federal financial aid jumped 80 percent between 2006 and 2013.

“Among our students, the assumption is that students are working full-time and attending school full-time,” Jacobs said. “You string together part-time low-wage jobs, and you continue to try to move upward by going to school.”

Macomb was hit hard by loss of high-paying factory jobs. Jacobs estimates that in 1969, about 60 percent of the manufacturing workforce was unionized in Macomb County; now it’s below 40 percent.
To a lesser extent, the same pattern has occurred across much of the state. Michigan’s growing economy, with unemployment down to 5.5 percent and 91,000 more jobs than a year ago, hasn’t boosted the budgets of Michigan’s middle class, who, as a whole, have less money to spend on homes, cars and college tuition than their parents.

One of the original goals of Macomb Community College was to train workers for those high-paying jobs in the auto industry, Jacobs said. Today, a production operator program at the college has a high placement rate in the auto industry, but the average pay is $14 an hour. “That’s $29,000 a year,” Jacobs said. A family of four with that income qualifies for food stamps.

“I don’t think residents understand the impact of the recession and the economic structure shift,” said Kurt Metzger, director emeritus of Data Driven Detroit and current mayor of Pleasant Ridge in Oakland County. “We realized a little too late that the new economy was built on a base of educational attainment and new skills. Our success, built on high-wage, low-education employment was gone and would not return.”

Older cars, worse roads

The generation-long middle-class malaise has repercussions beyond family budgets.

“One of the ways families have dealt with a lowering of wages, is virtually everyone in the family works,” Jacobs said. “So at the same time we’re looking at declining wages, we’re looking at changes in family life.”

Americans are keeping our cars longer (the average age of passenger cars is now a historic high of 11.4 years), dampening sales for Michigan’s auto companies, and spending less on vacation.

Ballard said he worries that if the income gap continues to grow, “there’s a potential for fraying of the social fabric.

“If you have a long enough period where large groups of people feel like they’re treading water, that’s a volatile situation,” Ballard said. “There are dangers to social cohesion if this great dis-equalization persists long enough.”

If that sounds like the gripes of the working class, consider an op-ed published in the New York Times last week by retired Young & Rubicam marketing conglomerate CEO Peter Georgescu. He wrote that the growing income gap is “creating a caste system from which it’s almost impossible to escape,” and that if not reversed, “the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes.”

At the state level, stagnated wages mean less tax revenue for state services such as road repairs and education unless taxes are increased, creating a “paralysis” in Lansing, Good said.

“We expect good roads and colleges. (But) we can’t afford the infrastructure we’re used to because the income model has changed,” Good said. “We haven’t adjusted to being a low-income state.”

Raising the middle

The solution likely starts in places like Macomb Community College, where more than 24,000 students, most of them already working full-time, low-wage, jobs, enroll in classes each year to try to climb a rung or two on the economic ladder.

Typical of those students is Sevie Harleva, a 36-year-old Troy resident working on an associate’s degree in nursing. She takes classes full-time, while working 30 hours a week as a dialysis technician and, with her husband, caring for three children.

“Sometimes I get depressed studying on a Saturday night when everybody else is out with friends,” Harleva said. “We’ve cut out pretty much everything for a couple years.

“My goal is to send my children to a good college, to sign them up for art classes and swimming if they want, to go for vacation once a year,” Harleva said. “Right now, I am unable to do that.”

Making it easier for Harleva and thousands of others to earn postsecondary degrees and certifications may be key. But figuring out what types of degrees will lift the middle is difficult.

Gov. Snyder is pushing for more skilled trade training. Snyder signed a bill in June extending a program that began in 2010 that encourages partnerships between businesses and community colleges to provide job-specific training.

“If you’re in manufacturing today and you’re on the production floor, in many cases you’re a skilled tradesperson, you’re running robotics equipment,” Snyder told Bloomberg News in April. “If you’re in agriculture today and driving a tractor that drives itself with GPS, you’re a skilled tradesperson.”

Jacobs agrees that there can be better alignment between coursework and jobs. The challenge community colleges and their students face is figuring out what skills will provide good paychecks for years to come.

As an example, Jacobs cites welding. “The biggest demand in manufacturing right now is welding,” he said. “We can offer training for welding. But among the auto manufacturers, the big trend is light-weighting – using more aluminum and composites and plastic. So the question is how many welders are going to be needed in the future, compared to how many people who will be needed who know about composites and chemistry. The auto companies don’t know, and then we don’t know. It’s a very uncertain market now, which leads to people taking risks and making decisions short-term and maybe not making the right decision.

“You don’t get a lifetime job at General Motors anymore,” Jacobs said. “The kinds of insecurities that emerge are enormous.”

Jacobs said he thinks Michigan is reaching a fork in the road, and which path it takes will have implications for the next generation.

“There’s the road taken by a lot of the southern states, where you basically shrink state services,” Jacobs said. “You privatize as much as possible, you keep taxes low.

“There’s another road that can be taken,” Jacobs said. “If people have lower incomes and they need to move around (for jobs), why wouldn’t there be more emphasis on a mass transportation system that made sense? If people need an education, why wouldn’t you have a much more seamless transition from high school to college? Why wouldn’t we make the decision that we need far more commonality among curriculum (to assure knowledge and credits transfer)?

“The facts are very clear, but the question of why those facts exist, and second, what you do about it, is very confusing,” Jacobs said. “There isn’t one easy answer.”

Facts matter. Trust matters. Journalism matters.

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Colette Gilewicz
Thu, 08/13/2015 - 9:12am
What a well-written and concise article about the destruction of the social contract in Michigan. Add to that the horrific cost of health care (or lack thereof) and we have the perfect storm here. No wonder the welfare office is the only boom industry in this state.
Thu, 08/13/2015 - 12:14pm
Colette, Where do I go to read that 'social contract'? Do the individual have any responsibilities in that contract? Does the social contract' say the person has to study to get an education is it about their being owed a certain income so they will be classified as 'middle class'? My family believed we were in the 'middle class' not because of our income [at best that was on the low end], but because of family/social values. We have taught to our children the family lessons and they are now 'middle class' using the social criteria I learned. Whether they meet Mr. French's income criteria isn't that important, is is only a half inch of line when describing what 'middle class' was pre-1969.
Ned S Curtis
Thu, 08/13/2015 - 4:08pm
Well, Duane, you should know about Rousseau or Locke or, at least, the Declaration of Independence. Never mind, just Google "social contract." Or just continue to be ignorant of your history and the people who got you here.
Thu, 08/13/2015 - 7:43pm
Ned, Since the article was about incomes and being part of the ‘middle class’ that would appear to establish the context of discussion, so any reference to ‘ social contract’ implies a required personal results not social rights and participation. You reference Rousseau and Locke, I doubt that they were talking about the financial status that Mr. French is writing about in the article Colette is commenting on. However, Colette can show my error if she will say she was talking about the ‘social contract’ of Rousseau and Locke and not the ‘middle class’ of this article. My view is the Declaration of Independence is about access to opportunity and the freedom to choose and not about happiness being assured. Mr. French is writing about results, income level with no mention of social barriers or social participation.
Fri, 08/14/2015 - 2:11pm
Ned - don't be a jerk!
Tue, 12/29/2015 - 10:58am
Amen, Duane, but then she wouldn't understand that. And to the CC Pres take a look in the mirror at the enormous rise in college costs that dwarf the true cost of living....
Sun, 08/16/2015 - 3:58pm
Other states are right behind us. As Michigan goes, so goes the nation . . .
Thu, 08/13/2015 - 9:46am
This isn't a Michigan issue solely - across the country this scenario has been repeated in state after state, esp. in Republican states. When the corporations and wealthy seize control of the media and our legislators they pass legislation that favors them. And they gerrymander voting districts to make sure no other party can win and stop their ability to make the middle class poorer and poorer. Get rid of unions so you can treat worker poorly, cut education, cut taxes for the wealthiest and business and forget who voters are (versus 'campaign contributors') and presto this is the GOP paradise they promised. Until the middle class wakes up and gets mad at the ballot box this will continue.
Thu, 08/13/2015 - 10:33am
Yes, one can only wonder how long it will take to get rid of the current group of know-nothings in state government.
Sun, 08/16/2015 - 4:01pm
Term limitations are much to blame here. It's fine in theory, but in reality, there aren't enough dedicated and wise lawmakers to serve us well. Most just run to gain the lifetime benefits.
Sun, 08/23/2015 - 8:53am
Two years. Then we get new know nothing's.
Thu, 08/13/2015 - 10:05am
Short answer? Reaganomics
Jesse Bernstein
Thu, 08/13/2015 - 10:27am
The "at-will" employment law was one of the thousand cuts that decimated the social contract and middle class. Technology also did away with millions of jobs in manufacturing, banking, publishing and other industries. We have been too slow as a nation to realize what was happening and retool education so people have basic skills to start on their journey of financial survival. I'm glad the article looked at income rather than job creation, since creating jobs does not represent the ability of people to live financially comfortable lives.
Jerry Stephens
Thu, 08/13/2015 - 11:40am
Well said, Im so sick of hearing about how Michigan is creating all these new jobs...Thses "newly created jobs" don't mean diddly squat if they aren't paying a living wage.
Jarrett Skorup
Thu, 08/13/2015 - 10:35am
"Yet today’s workers are part of the first generation in Michigan history who, taken as a whole, are not better off than their parents." I disagree. How many Michigan residents seriously believe the standard of living was better back in 1969?
Ron French
Thu, 08/13/2015 - 11:35am
Well Jarrett, my guess is most people would say our standard of living has dropped, but whether a public poll backed up your theory or mine is not the point; the point is that data indicates that middle class Michigan residents, as defined by median household income, have much lower buying power today than in 1969. That's not a partisan issue, it's just a fact that has implications for how we live and how we govern. Good discussion, thanks for reading
Jarrett Skorup
Thu, 08/13/2015 - 1:21pm
Median income is not the only thing that determines standard of living or whether someone is "better off." Food is way better today (and cheaper). Housing is way better. Clothing is better and cheaper. Health care is phenomenally better (I visit the same hospital as the CEO of a Fortune 500 company). Vehicles are way better (a reason why people hang onto them longer). Technology in every way, including household items like washing machines, dryers, etc, are all way better. In other words - money goes much further today than it used to (even in Michigan).
Ron French
Thu, 08/13/2015 - 1:55pm
you are correct that the parents of today's middle class families didn't have cell phones in 1969, or the Internet, or 600 channels on TV. They also were more likely to be able to afford to send their children to college if they chose, and buy a cabin Up North, because their paychecks had more buying power. To bring up that you go to the same hospital as a CEO (Did they have separate hospitals for the wealthy in 1969? I didn't realize that) seems to imply that people should not be upset about making less money than their parents because, well, Mom and Dad didn't have ESPN4. If your argument is that Michigan middle-class families make less money today than their peers in 1969, but they should stop complaining because they can now watch cat videos on their phones, we're going to have to agree to disagree.
Jarrett Skorup
Fri, 08/14/2015 - 9:47am
I thought my post was clear, but I'll expand. I argue that today's middle-class has better access to food, housing, medical care, vehicles, household items (which allows more women into the workforce), clothing, vacation destinations, and more. In other words: In virtually every way, the middle-class (and poor) are better off today than in 1969.
Ron French
Fri, 08/14/2015 - 10:35am
With all due respect, I have to ask: what year were you born Jarrett? Because you seem to have a fundamental misperception of what life was like in 1969. I was alive then. I grew up in a rural household that today would be considered low-income, I don't recall any problems with access to clothing or medical care. We took family vacations, had home-cooked meals, none of which came from the frozen food aisle. If I recall correctly, we even had two vehicles, neither of which required my father to use his feet to propel ala "The Flintstones" (which I was able to watch on a color - yeah they had color back then - television). We're all happy that today we have MRI technology to offer detailed, life-saving images of cancer. We're all happy to have anti-lock brakes and GPS in our cars. None of that changes the fact that if middle class families earned as much today as middle class families in 1969, they'd be able to better afford those cancer treatments and purchase newer cars, and take more vacations and not worry about how they're going to afford to send their children to college. I think when we bore down, we have a fundamental disagreement about whether today's indisputably lower wages (lower buying power than in the past) and growing income gap between the middle class and higher earners has an impact on the world we live in today. You may have a hard time finding many in the middle class who agree with you that they're better off "in virtually every way."
Sat, 08/15/2015 - 1:24am
Mr. Fench, You claim there is an income gap, but you don’t explain why that matters if the quality of life is meeting the needs and wants of the overwhelming majority. Why should I be concerned with a gap if I have a better/safer [me and mine are more likely to survive a crash] now than 45 years ago or someone is driving a Vette why I am driving a Ford if both mine is meeting my needs? If I am enjoying good food [safer and more variety] now than 45 years ago or someone is paying more for what they eat, why should it matter? If I am receiving better medical treatment now [in ways that were not available for anyone 45 years ago] if I am receiving the same lifesaving medical treatment as everyone that enters the ER why should I be concerned about an income gap? If I am meeting my needs of food, shelter, and clothing and entertainment better now than 45 years ago what harm am I suffering? If someone else has a different cut of meat then me, or has designer label cloths, or lives in a house or two or ten times the size of mine because they have a larger income why should it matter? Saying there is an income gap and ignoring/discounting how we life when it is that difference from then to now or from others is creating a false premise. Money in and of itself have no value, it is what it can provide that gives it value. To ignore what is provided independent of the income and yet is what was paid for directly then is to mislead the reader and create false understanding of reality. A safer car cost less when it prevents an injury that disrupts income.
Sun, 08/16/2015 - 4:08pm
Challenge that appliances are better now: Just had a 22 year old dishwasher repaired and serviceman has been in the business for 28 years. Yes appliances "do" more, but he's busier now than ever because the newer appliances are so poorly built and only come with a 1 yr. warranty.
Mon, 08/17/2015 - 1:16pm
I have a Maytag washer and dryer that are both 26 years old, had a few repairs over the years and even though newer models are more energy efficient I don't really want to replace them because the quality of the modern machines is so poor these days.
Mike Reade
Tue, 08/18/2015 - 1:03pm
Jarrett failed to disclose that he is employed by the Mackinac Center to disseminate propaganda. The undeniable problems backed by hard data in this article are inconvenient truths for his employers and must be refuted.
Tue, 12/29/2015 - 11:11am
Au contraire Mr. French the expectations created by text such as yours that refuses to recognize the costs that the 'previous' generations paid to attain the good life has signaled this current generation that everything can be provided by OPM, either in student loans, Pell grants, etc.....A recent story by your epistle focused on a 'senior' at Eastern Michigan who was 'homeless'. Yet he had burned through twelve semesters of Pell grants and was getting the proverbial loans and supposedly carrying a 3.4 average yet at 26 hadn't rec'd a degree. I got my violin out for that one...go out an get a job like the rest of us did, it can be done.
Richard H. Burke
Thu, 08/13/2015 - 11:37am
Times were much better back in 1969. I remember family vacations. Having dinner at the table with my parents. Playing outside instead of staring at a cell phone or computer all day. People actually talking to each other and being polite to each other. Things were way better then they are today!
Thu, 08/13/2015 - 6:59pm
I was a teenager in 1969 and remember that era well, economically it was quite different than today, it was not all wonderful of course because there were still a lot of bad things going on in the US and the rest of the world. We were what could be considered typical middle class, those family vacations were a lot of fun. That year we went camping at Rocky Mountain National Park.
Jerry Stephens
Thu, 08/13/2015 - 11:44am
I was way better off financially in the 80's than I am now, and I make 300% more now than I did back then, so I tend to agree with this interview...not that my opinion matters.
Thu, 08/13/2015 - 10:41am
Good question. First we need a definition of standard of living so we know what exactly we are talking about. I found these: 1 : the necessities, comforts, and luxuries enjoyed or aspired to by an individual or group 2 : a minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances
Thu, 08/13/2015 - 11:28am
In the 1970s the economy moved from one based on leveraging the strength of the worker to one based on leveraging the intellect/knowledge and skills of the worker. It no longer was about working harder, but became about working smarter. This shifts the success of a ‘middle class’ to one of learning and places more control for success in the efforts of the individual and their determination [sacrifice, persistence, and desire] to learn. Everyone has access to K-12, they have access to an extensive community college and university system so they have greater access to increase their knowledge and skills and value to employer then ever before. Being part of the 'middle class' is a choice, a choice that requires effort and desire. I wonder why fewer are making that choice.
Richard H. Burke
Thu, 08/13/2015 - 12:22pm
In the 70's you didn't need a $50,000 degree to get a job. It was on the job training. You could try a job and if it wasn't what you wanted to do you tried something else. Getting a degree doesn't mean you are willing to work. Book Smart and Common Sense don't always go hand in hand. Alot of people may not be able to handle college but they could and would love to be trained to do a job.
Thu, 08/13/2015 - 7:39pm
Richard, "Alot of people may not be able to handle college but they could and would love to be trained to do a job." Why should an employer invest in the training of a new hire if the new hire doesn't invest in their own training?
Sun, 08/16/2015 - 10:03pm
In the past, companies understood that it was their responsibility to make sure their employees (new hires) would be trained for the jobs at hand. The new hire came with basic skills and a willingness to learn, and the company provided the training specific to the job at hand. Now the company expects the new hire to come in "fully trained" for their company.................how is that possible and/or probable?
Mon, 08/17/2015 - 12:20pm
Linda, The work force (pool) has changed, and the employer environment has changed. The necessary basic skills are higher today, the willingness to learn is as clear as it once was, and employers to survive have to remain competitive. Consider three factors when thinking about employer training; mobility, selectivity, cost. The youth are very mobile (delaying family and security), competition for trained workers is increasing risk of losing a new hire. Government is encouraging mobility by discouraging benefits that grow with time and performance at an employer, and employers have to remain competitive (seeking faster productivity). Employers have to be more selective in who they hire, considering the cost/risk of each hire, the productivity of each, and benefit to customers. Part of the selection process is to seek determine and driven candidates. The candidate that has gained valued knowledge and skills scores higher when an employer compares candidates and is morelikely to be productive sooner. For a private employer to survive they need to minimize costs while increasing productivity. Each investment in an employee [medical care insurance, retirement, training] are costs and must be weighed against customer benefit. With mobility be driven by the young and the government (better medical care [‘Cadillac plan], uniformity of benefits [can’t be better for some must be same for all], full liability for all independent of actions, etc.), training. Training in house costs, rises with the technology of the knowledge and skills, dedicate resources to maintain the training program, better trained employee is more marketable to other employers, training may require certification, and it delays time (pay to be trained) to being productive. The longer an employee stayed the better the return on their training cost. Is there any particular training you feel employers should be providing?
Thu, 08/13/2015 - 1:51pm
Get on board the Bernie Sanders bandwagon! He has ideas that address this very situation; they are doable, and they are necessary if our country is to survive.
Thu, 08/13/2015 - 2:03pm
Good story but at times I felt a bit confused by the numbers. You used "family" and "household" more or less interchangeably, which is understandable from a semantic sense. But statistically median family income and median household income are very different things according to the Census. Median family income is about $10,000 higher than median household income. This is because "households" per the Census include all the persons living in a housing unit, while families are two or more persons that are related by marriage, blood, adoption etc who live in the same housing unit. Households include a lot persons living alone: never married, widows and widowers, divorcees with no children. These folks are part of a household, but aren't a "family" for the purpose of calculating median family income. These single person households typically have only one income, while families often have two, sometimes more, persons employed. So with multiple jobs in many families, median family income is much higher than median family income. Maybe others suffered no confusion because the definitions Census uses are not obvious, but I kept mentally tripping over that $10,000 gap
Fri, 08/14/2015 - 7:46am
Good point.in 1969 more households had only one full time worker so the family impact is even greater.
Charles Richards
Thu, 08/13/2015 - 3:24pm
With all due respect for Professor Ballard and Mr. French, not every one agrees with their analysis. Martin Feldstein, writing on the Project Syndicate website, had this to say. "When the nonpartisan Congressional Budget Office (CBO) conducted a detailed study of changes in household incomes from 1979 to 2011, it expanded the definition of income to include near-cash benefits like food stamps and in-kind benefits like health care. It also subtracted federal taxes, which fell from 19% of pretax income for middle-income households in 1980 to just 11.5% in 2010. To convert annual incomes to real incomes, the CBO used the price deflator for consumer expenditures, which many believe is better for this purpose than the consumer price index. The CBO also presented a separate analysis that adjusted for household size. With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau’s estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household’s real income rose by 45%. Adjusting for household size boosted this gain to 53%." Kurt Metzger displayed a cogent analysis of our situation when he said, "“I don’t think residents understand the impact of the recession and the economic structure shift, We realized a little too late that the new economy was built on a base of educational attainment and new skills. Our success, built on high-wage, low-education employment was gone and would not return.” Exactly. The increase in inequality that Professor Ballard laments results from a substantial increase in returns to education and skills. Another contributor to inequality is "assortative mating." With bright, talented women receiving college educations, marrying smart, educated men and setting up two income, high earning households, it is only natural that inequality would increase. And it should be noted that the United States is not alone in witnessing a significant increase in inequality. All the rich, developed countries are seeing the same change. In addition to the general forces at work, Michigan has particular problems. At one time, the big three, and Michigan had a dominant position in the auto industry and could sell often mediocre cars for big profits and provide generous pay and benefits for their workers. That inflow of resources from the rest of the country made life good in Michigan. All of that ended when the Japanese companies built assembly plants in this country. The transition, as the article points out, has been wrenching. Peter Georgescu is mistaken when he says the growing income gap is "“creating a caste system from which it’s almost impossible to escape,” About twenty percent of the people in the bottom quintile move several steps up the income ladder in a generation. And contrary to Mr. Jacobs characterization of the Southern states, people are migrating to those states and leaving those states with government programs.
Jarrett Skorup
Fri, 08/14/2015 - 9:50am
Good post, Charles. I'd add one notes: Household income is not an apples-to-apples comparison because the average household has declined. The average household size has dropped from 3.14 to 2.54 (see: http://www.statista.com/statistics/183648/average-size-of-households-in-...) since 1969 and adjusting incomes accordingly produces the not nearly as shocking result that median household income per person was only 6 percent higher in 1969 than they are now.
Thu, 08/13/2015 - 5:18pm
I haven't seen anyone mention the 2 items that we have today that we did not have in 1969 - instant communication and instant transportation. Almost any well paying job can be done overseas, jobs such as engineering, interpreting medical results, law, manufacturing, and many more. Coupled with consumers desire for the absolute lowest cost has led to stores such as Walmart, Amazon, and internet sales, and has pushed people to source work overseas to accommodate their customer desires. Everyone wants the absolute best quality product at the absolute lowest price. The best CEO's are just accommodating their customers.
Fri, 08/14/2015 - 9:00am
Does anyone else see an inherent contradiction in this piece?"There’s another road that can be taken,” Jacobs said. “If people have lower incomes and they need to move around (for jobs), why wouldn’t there be more emphasis on a mass transportation system that made sense? If people need an education, why wouldn’t you have a much more seamless transition from high school to college? Why wouldn’t we make the decision that we need far more commonality among curriculum (to assure knowledge and credits transfer)?"And this is to be paid for...how? With more taxes? And wouldn't that eventually lead to this?If that sounds like the gripes of the working class, consider an op-ed published in the New York Times last week by retired Young & Rubicam marketing conglomerate CEO Peter Georgescu. He wrote that the growing income gap is “creating a caste system from which it’s almost impossible to escape,” and that if not reversed, “the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes.”Great plan! Have the government take money from people already having a hard time making ends meet and giving to everyone to make everything better? Sounds like something concocted by Engles and Marx? And does anyone wonder why things like the exponentially rising cost of higher education ("inexplicably" rising at a greater rate than inflation) aren't touched on in this article? Or that viable alternatives to government ran mass transit, like Lyft, Uber or Bridg, are also taboo? Since government taking what little people have is a problem, why is there no focus in putting as much of that money back into the hands of the people who first earned it? I'm pretty sure that they can find something to spend the money they earned far better than some bureaucrat with grandiose schemes; a'la the "social contract" that I've never actually seen nor want any part of.
Fri, 08/14/2015 - 12:08pm
Your second example was a super rich guy talking to super rich people, not middle to lower-class people. He was saying that the super rich would end up paying oppressive taxes or there would be a revolution if we don't fix income inequality. So, pretty much exactly the opposite of the point you were trying to make.
Fri, 08/14/2015 - 4:15pm
When the income tax was foisted on us by a "progressive" democrat (read: Woodrow Wilson), they used a similar argument back then: Only the rich would be paying this tax. Everyone else did not need to worry. Last time I checked, there were plenty of tax preparation offices in places like Detroit, Flint and Pontiac. Taxes do not fall solely on one economic bracket of our society for very long.
Sun, 08/16/2015 - 8:47am
In urban areas, many of those tax filers are single women with children that don't have any earned income, but receive thousands in tax credits. Meaning pure cash for poor decisions in life. That demographic that is tied to lack of family and lack 2 wage earner households is decimating the urban communities. A lot of this is poor personal choice. The safety net is becoming the way of comfortable life for many.
Allan Blackburn
Tue, 08/18/2015 - 10:50am
Comfortable? Try living on it for awhile and let me know how comfortable you are.
Rick Haglund
Fri, 08/14/2015 - 1:13pm
And what is our economic strategy to combat these disturbing trends? Keep promoting our traditional industries that are unlikely to produce the number of middle-class jobs we need--manufacturing, tourism and agriculture.
Fri, 08/14/2015 - 4:49pm
"And what is our economic strategy to combat these disturbing trends? Keep promoting our traditional industries that are unlikely to produce the number of middle-class jobs we need–manufacturing, tourism and agriculture."Like it or not, these trends have been part of the republic's history ever since the beginning (i.e. The Panic of 1937, Gilded Age, Great Recession and Stagflation just to name a few). My $0.02 would be to address the real issue here, and that would be the banking industry itself. But given the fact that he financial sector has "embedded" themselves as firmly as possible in the legislative process (see exhibit "a": Dodd-Frank), the likelihood of ever happening at all are nil.
Fri, 08/14/2015 - 10:19pm
Correction: The Panic of 1837
Fri, 08/14/2015 - 4:03pm
Everyone should know what the government is defining as middle class: a car, college education for your two kids, and one week of vacation every other year (US Department of Commerce Economics and Statistics Administration, 2010). Some of us in the "middle class" are struggling even with that, despite dual incomes. And it takes two working adults now to achieve this, a significant change from 1969, when roughly half of women with young children worked outside the home. Highlights from the government report: "... prices for three large components of middle class expenses have increased faster than income: the cost of college, the cost of health care and the cost of a house. Thus, we conclude that it is harder to attain a middle class lifestyle now than it was in the recent past. One of the hallmarks of American society has been the common desire among families of all backgrounds for economic security and a better life for their children. Unfortunately, many families are not able to afford the sort of expenditures that we lay out in this report. If American families are to realize their middle class dreams, the nation must have a healthy economy, a responsible private sector that offers decent jobs with benefits, and an effective public sector that provides high quality schools for all children. "...many families, particularly those with less income, will find attaining a middle class lifestyle difficult if not impossible. Areas with high housing costs can make even higher-income families feel pinched. Lack of employer-provided health insurance can confront a family with bankrupting health costs. And unforeseen expenses can ruin even the best-laid budget plans." These are issues of public policy, not personal responsibility.
John Q. Public
Fri, 08/14/2015 - 8:08pm
You know, "quality of life" may not even mean what it used to mean. The generations that follow me seem to just plain value different things. They seem to want technology-driven services and epicurean delights more than cars and second homes. The $350-a-month payment I made for fifteen years to have a riverfront cabin is roughly the combined phone/TV/internet/coffee bill my adult kids have. They tease me on every visit about my 10-channel TV menu, my five-cents-a-cup home-brewed coffee, and my refusal to pay five bucks a pint for beer in a restaurant. They don't have a vacation place up north like I do, but I've never visited even 1/10th of the places they have. What they don't have is as much about choices as it is about income. That isn't to discount the real-dollars income gap, which is well-documented, but seemingly overstated. I worked my entire life in jobs I didn't particularly care to do, because they paid well. My kids refuse to do that. Vive la difference.
Bruce McFee
Sat, 08/15/2015 - 11:44am
Much of this comes from federal policy that makes it easier for multinational corporations to manufacture outside the US and import back. The multinationals pay less in taxes than domestic firms, they have fewer employment and environmental regulations, they get subsidies from governments like China, etc. Then we US residents buy all those foreign made products including IPhones.
Sun, 08/16/2015 - 12:16pm
It is tempting, but wrong to blame, to politicians for this. I can only fault our leaders in one way, they are afraid to speak the truth. The truth is it is our fault, the collected voters and citizens -we have allowed this to happen to us. The handwriting was on the wall several decades OK, the skills we had were not aligned with the skills the world needs. The days are gone when we as a society can rely on physical work now we rely on skill. This is not to say that hard work isn't necessary, it is. The nature of work is what has shifted, shifted from manual to machine. Our task is now developing the machines, the tasks the machines undertake and the value that adds. The machine may be a 3D printer, an autonomous vehicle, a new form of travel, it may be what our imaginations make it. Blame our politicians for not being honest with us but frankly did we want to hear the truth? No, blame is easier. Look at yourself and the skills you have and the value you add. Fix the education system to focus on skills, discipline and hard work. Look for leaders who tell you the truth and the truth is not tax breaks, or blame - it is skills and fairness
Tue, 12/29/2015 - 6:23pm
In 1969, my dad would not dream of keeping a car over 40,000 miles, they fell apart. But they cost less. In 1969 single parent households were rare, what is the percentage today? In many ways we have lost ground, but in many ways the world, and what we look for have changed. Per capita income might be a better measure, as might quality. There is no question, however, that the rich have gotten richer.